Chancellor Angela Merkel made great transatlantic use of her roles as EU president and G-8 chair, not least in getting President George W. Bush to make more of a commitment at Heiligendamm on climate change than anyone expected. Her earlier efforts this spring to turn the usually moribund EU-US summit into a launching pad for a transatlantic regulatory initiative will also pay off over time. Clearly, she has a vision for constructive transatlantic cooperation that is more ambitious yet practical than we have had from either side of the relationship in some time. It is unfortunate that her, and thus Germany’s, term in these rotating positions is coming to an end (whatever happens with the internal EU debates).

But the end of Germany’s formal chairmanship terms should not impede Merkel from continuing to show substantive leadership in global economics. The US administration does not wait seven years between its turns in the G-8 chair to try to affect the transatlantic and broader Western agenda and neither should the German government. Germany remains the largest economy and (Polish qualms notwithstanding) voting share country in the European Union, whether or not it is formally in the presidency. More importantly, Merkel’s government clearly has the ideas and motivation to try to move the transatlantic economic relationship forward. Both of these have been lacking from most of the other participants in the EU-US and G-8 summit processes. In fact, the weakness of the Bush administration and the domestic self-absorption of most other European governments at present mean that there is an open road to German agenda setting in this area.

Of course, Germany’s commitment to the European Union’s power sharing arrangements, and the historical legacy that underlies that commitment, makes Berlin’s governments reluctant to assert themselves. So the Merkel government is currently pledged to supporting the Portuguese EU presidency carrying forward the transatlantic initiatives it began and will give way on the G-8 to Japan, the next chair. While this respect for institutions is healthy, it is in this context excessive. Both the European Union and the far narrower G-8 are bodies of long enough standing that an assertive Germany would be constructive without harm—akin to an outspoken independent member of a corporate board or a senior parliamentarian in party caucus. It is time for German action beyond waiting its turn in the arena of economic cooperation—the exact kind of soft power exertion which is the natural outlet for German foreign policy without angst, internal or external.

Leadership requires substance, and cooperation on energy in relation to climate change is an issue area where there is both a demand and a clear comparative advantage for Germany in transatlantic leadership. Germany’s record of environmentally responsible energy use across the decades and changing governments and its current cutting edge technologies and businesses in the area of power generation already give it huge credibility on this issue. Merkel’s success in moving forward an intra-EU agreement on emissions targets only adds to the favorable positioning. Also beneficial is the fact that the German economy is sufficiently large and manufacturing intensive that when it experiments with new rules and technologies, its actions make a noticeable difference to global outcomes.

So what should Germany do with its leadership capacity in the energy area? First, it has to set the foundation for integration of any carbon emissions cap and trade systems across national boundaries and the Atlantic (A much higher carbon tax would be far preferable on efficiency grounds than any cap and trade framework, but apparently is politically infeasible). The closer to global membership of such a system, at least among the advanced economies, the more efficient, since it gives more opportunities for linking up sellers and purchasers of emissions, and it does not complicate life for companies engaged in global production. Furthermore, we could expect that the corruption and politicization of allocating carbon caps and permits would be reduced the more transparent and far from local politicians the decisions would be made. Surprisingly, the US political system is rapidly moving towards instituting some form of cap and trade, with strong corporate backing, so the time to lay the groundwork for integrating European and American systems is now.

Second, Germany should be working to rationalize the respective US and EU programs on biofuels development. As is well recognized, the emphasis on maize-based ethanol is causing major distortions in world food markets, as well as probably wasting money on building up one of the least efficient forms of biofuel. Meanwhile, maize farmers in both the United States and European Union are gathering as many subsidies as they can, and thus expanding their production around the potential trade agreements for rationalization coming out of Doha. The trade barriers on both sides of the Atlantic to far more efficient Brazilian sugar-based ethanol are another wasteful distortion. Just as in the past when Germany has brokered trade agreements overcoming European agricultural protectionism, is should step up now opposing the national pandering about crops important for renewable energy.

Third, the major suppliers of power generation technology and plants have to get some agreement on minimum environmental and emission standards for new plants being built in the emerging markets. The growth in power generation demand in the large developing economies is an opportunity for German and other companies. But it is also a mounting environmental threat if they are overbuilt, rely on outdated brown coal processes, or are inefficient in producing that energy. Germany’s commercial leadership in this area could help get such a minimum standard in place, and perhaps the necessary subsidies or technological investments from advanced economy governments, to promote adoption of newer and cleaner power plants rather than cheaper polluting ones. This would be akin to the technical assistance assuring safety standards at post-Soviet nuclear power stations on a larger scale. Taken together, these three German initiatives would make a substantial improvement in the transatlantic economic relationship as well as climate change, while remaining well within the strengths of the Merkel government.